Making savings against BT

At some point you've probably had someone try and sell you an alternative
telephone contract with promises to save you money. If you've ever wondered how (or indeed
if) this actually works, this information sheet is for you.

First things first - are you currently using BT?

BT, or British Telecom as was, used to be publicly owned, that is the infrastructure
was paid for by the British taxpayers and any profits (or otherwise) were paid back into
the treasury's coffers. When BT was privatised, one of the reasons for the sell off was
to open the industry up to competition to force standards up and prices down.

Different people have different opinions as to whether this was a good thing and whether
it has achieved its aims, however the point is that BT are required to operate in a way
which allows competition, whereas the same rules do not always apply to other suppliers
such as cable companies like NTL.

Therefore, this document is aimed specifically at those who use BT. If you are using
a cable company you will probably find that you are already paying a lower line rental and
paying less for calls than on a standard BT rate.

OK, so I'm using BT. How can anyone provide a service to me?

Would I have to change
my number or have someone visit my house or office to install equipment?

BT are required, by law, to allow you as a BT customer to "route" your calls over
alternative suppliers if you wish to do so. When you make a call at the moment, your call
goes from your phone to a local BT exchange, from there it travels by any appropriate route
to the local exchange closest to the person you are calling, and from there to their phone.
There isn't a fixed route between exchanges; the actual route taken might not be the most
obvious one geographically but will depend on available capacity and may potentially take
a detour to avoid faults.

In practice, not all of the available routes are maintained by BT, although it'll be
BT's routes you will be using by default. If you switch to an alternative supplier then
the path taken between the two local exchanges will be changed to use a route maintained
by another company. That other company charges you for the call, and pays a bit back to
BT for the "local loop" part, ie the bits at each end up to the local exchanges.

This is all a massive over-simplification, but hopefully it explains the principle.
There are tens if not hundreds of companies able to offer alternative routing, and
of-course they don't all maintain their own sets of cables; instead they simply bulk-buy
minutes of call capacity at a reduced cost from the bigger operators and sell them on to
you at a price which represents a saving to you and - hopefully - a profit to them.

The result is that you retain your BT line (and BT phone number), and continue to be
billed by BT for your line rental, and pay separately for your calls to your new supplier.

How can anyone do this cheaper than BT?

Well firstly, BT themselves could reduce their prices if they wanted to. Indeed they do
have many opt-in schemes which allow you to make savings ("Friends and Family",
PremierLine, etc). It is surprising just how many BT customers don't actually take
up these options, but this is also the simplest explanation for the price difference
between BT and its competitors. Huge numbers of people just never get around to
switching, and it is not in BT's interests (or specifically in the interests of its
shareholders) to encourage them or to drop the rates it charges them.

Secondly, BT has an relatively old network to maintain, and the newcomers often
therefore have newer, more reliable and lower maintenance hardware to look after.

In practice, as far as competitive pricing is concerned, the alternative suppliers
compete amongst each other and offer broadly similar rates as each other, yet all
of them undercut BT significantly. As an example, you can expect an alternative
supplier to charge around half of what BT charges for a long distance (ie "national
rate") daytime call. Savings to international destinations can be far bigger than
this, whilst calls to mobiles (and premium rate numbers) are typically very close to
BT due to way the revenues from each call are paid to the mobile (or premium rate
line) operators.

What about other services?

Incoming services such as 0800 (free call) and 0845 (local rate call) numbers are
usually much cheaper with alternative suppliers. Services which are heavily
integrated with the telephone system such as 1471 and Caller ID continue to be
provided by BT.

How does it work?

You need to tell your local exchange to route the call via an alternative supplier,
and that alternative supplier needs to know about you so that they can charge you
for your calls.

Usually you would sign up with a provider and they would give you a four digit
access code which you prefix your calls with. Remembering to dial the code is not
too bad, but since when you forget your new supplier doesn't make any money they
usually make it easier for you by providing a small box to plug into your phone
socket to dial the prefix for you automatically, although if you have an office
and an internal exchange you would probably program that directly.

A new option is to have your local BT exchange programmed with your preferred
supplier so that all calls go through them automatically. Known as "carrier pre
selection", you can still make calls via BT if you wish - you simply have a prefix
for your BT calls instead of your normal calls.

The astute amongst you will have realised than in principle you could have accounts
with several suppliers and choose whichever is best for individual calls. This is
called "least cost routing", although given the similarity in rates between most
suppliers other than BT this job is best left to an internal exchange unless you
really make lots of calls. Another thing you may have noticed is that if you don't
use the prefix your call goes via BT - that is, if you don't like your new supplier
you simply don't use them!

Since this only affects outgoing calls your incoming calls are not affected. In
particular, your telephone number does not change. Similarly if you decided to take
advantage of a new 0845 or 0800 number this would simply route through to your
existing number and would be an alternative to it not a replacement.

Go on then, sell me one!

There are several suppliers around, and we've had experience of several of them.
The one we have used for the last few years, and indeed the one for the last few
months we have also been an agent for, is The Phone Coop.

The Phone Coop is different from its competitors in that, as its name suggests, it
is a cooperative run for the benefit of its members - it has no shareholders, and
any of its customers can become a member and get dividend payments as a result.
Its pricing policy reflects this, as it charges for services at levels it can
sustain rather than at levels the market can take. For example, through the Phone
Coop we can offer you an 0845 number at no monthly cost, no setup cost, and no
charge for incoming calls (most suppliers charge at least one if not all of these
fees), and yet the Phone Coop still generates a small amount of revenue from calls
to those numbers.

Like BT, The Phone Coop charges by the second, but unlike BT they make a minimum
charge per call of 1p (BT charge 4.2p). If you make lots of short calls this can
represent a huge saving, and it is something you should be aware of when looking
at the range of suppliers currently offering services (some of whom charge up to
10p minimum call charge, or (as in the cases of NTL and Cable & Wireless) charge
a connection charge of around 3 to 5p).

As an agent for The Phone Coop we are of-course biased so you would be advised to
research your options. The main thing though is that inactivity costs you, and armed
with this information activity should be a little less intimidating.
Since there are no ties there really is nothing to lose - now how often is that true?

For some relatively unbiased help in looking at the options available, and how to
interpret the small print when looking at the deals available, see our
guide to comparing.